Shares in Oslo-based Norwegian Air were in a tailspin on Thursday, falling 21.5 percent after International Airlines Group (IAG) announced it was withdrawing an earlier offer to buy the airline. One analyst called IAG’s loss of interest “a dramatic development.”
IAG issued an “update” Thursday, confirming that it “does not intend to make an offer for Norwegian Air Shuttle ASA (Norwegian) and that, in due course, it will be selling its 3.93 per cent shareholding in Norwegian.”
IAG noted that its earlier stake, which had amounted to a 4.61 percent stake in the airline, had “since been diluted to 3.93 per cent as a result of subsequent share offerings issued by Norwegian during the first half of 2018.”
IAG’s bulletin means that not only has it lost interest in Norwegian, it’s dumping its holding as well. That sent the airline’s share price down to NOK 140 at the close of trading on the Oslo Stock Exchange Thursday. As newspaper Dagens Næringsliv (DN) noted, Norwegian’s share price hasn’t been that low since December 2012.
“This is a dramatic development,” Peter Hermanrud, chief strategist at Sparebank 1 Markets, told DN. “We all see that.”
Hermanrud said that Norwegian Air’s stock has “definitively” been held up on expectations that a takeover bid from IAG, which officially expressed interest in Norwegian last spring, would be forthcoming. “Therefore it’s not surprising that the share price falls steeply,” he told DN. “It could have actually fallen more, maybe up to 50 percent.”
Norwegian Air’s founder and largest shareholder Bjørn Kjos has said he didn’t want to sell the airline that he launched as a low-fare domestic carrier within Norway, later expanded widely around Europe and then with intercontinental routes in 2013. They were plagued by nagging problems with Norwegian’s fleet of new Boeing 787 Dreamliner jets, however, and Norwegian has long been vulnerable to its lack of back-up aircraft when things go wrong. Nor is Norwegian a member of any airline alliance that can help when passengers get stranded at various locations around the globe.
Norwegian Air, burdened by heavy debt, now also faces a lack of capital needed for its aircraft financing, with new capital needed within the first quarter. It has firmly denied cash-flow problems, though, and has been working hard to avoid violating terms of its financing.
“Norwegian is in a terribly demanding economic situation,” Hermanrud told DN. He thinks there may, however, still be hope for “a transaction” that can bail the airline out of its troubles.
“I think this was a situation where a major player (IAG) showed interest while economic development in Europe was good and the planes were well-filled,” he added. “Now the situation has changed, and the macro-economic development isn’t so good any longer. That can be a reason to sell in itself, but other bids could come along, and IAG itself may even come back.”